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The Instagram Problem: Three Companies That Stopped Providing a Free Service

As NPR's Planet Money podcast reported back in July, US veterans bear a grudge against the Red Cross to this day. The issue? Doughnuts. In 1942, the Red Cross began charging servicemen for the coffee and doughnuts that they had previously provided for free, sparking outrage among the soldiers. The policy immediately changed back, but the veterans haven't forgotten or forgiven.

Analysts have attributed this to what's called a "categorical change," the idea that while raising prices is no big deal, charging for something that was previously free changes the very nature of the interaction, which creates much more distress among consumers. Services have been known to go the other way around to great effect; remember how we all used to pay AOL for Internet access by the hour?

But the Red Cross hasn't been the only organization to get caught up in this kind of problem. Here are three services that followed suit and were once free but are now paid.

1. Instagram

If you haven't heard the news, Instagram is making big changes to its business model. In the latest of a series of shady moves, the photo-sharing service has announced that not only will there now be advertisements where there were none, but that it would also be changing its terms of service to include this little gem: "You agree that a business or other entity may pay us to display your username, likeness, photos, and/or actions you take, in connection with paid or sponsored content or promotions, without any compensation to you." So while you may not be paying for the service, you may someday see that filtered picture you took of a tasty parfait used in an ad for Jamba Juice. While it seems like a bit much, the move makes sense; it's not as if Facebook (FB) spent a ridiculous $1 billion on Instagram without planning to make some money off of it.

Even better: Instagram co-founder Kevin Systrom has issued a statement in which the company appears to be desperately backpedaling from its original terms of service under the guise of having been "misinterpreted" by users: "As we review your feedback and stories in the press," said Systrom on Instagram's official blog, "we’re going to modify specific parts of the terms to make it more clear what will happen with your photos." The phrase "more clear" may ring particularly false with users, though, since anyone who can read can see what the company originally intended to do. At best, this is a bad bit of legal writing; at worst, it's a shady move by a company that tried to pull one over on its users and is now dealing with the fallout.

Our nation's newspaper of record, the New York Times (NYT), was at a crossroads. With the decline of the newspaper industry in favor of online news, NYTimes.com couldn’t afford to remain free, since Web users had zero reason to buy subscriptions. So the paper introduced a solution: It would allow users to read 20 articles for free every month, after which the reader would be prompted to buy a number of subscription plans. The Times was betting, essentially, that its product was so incredibly good that readers would pay for services they could get elsewhere for free. If, to borrow the Red Cross’ example, there were mediocre free doughnuts available on every street corner, would people still shell out a few bucks for a Krispy Kreme? The gamble paid off, and the model has been a success for a number of reasons. This July, the New York Timesreported that it had 509,000 digital subscribers and had not lost significant traffic.

Well, we couldn't end on a success story. The original Napster, in its early-2000s heyday, boasted 26.4 million users and an almost unlimited library of free streaming music despite almost immediate challenges from the RIAA. After a while, though, the law caught up with the company and bankrupted it, after which the music streaming service Rhapsody snapped up Napster's subscribers, logos, and name. Since then, Rhapsody has been tight-lipped about its subscriber count, with the last figure at 1 million, while competitor Spotify has shot up to 4 million paid subscribers and 15 million total active users. This means that Napster, at best, has less than 4% of the users it had a decade ago. Luckily for Sean Parker, he later got his foot in the door on a slightly bigger project.